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Early-retirement wannabe

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Marine_lifeMarine_life Forumite
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Hung up my suit!
I would like to create a topic (don't see it at the moment - other than the NUMBER thread).

Who is aiming for early retirement (or who has retired early already)?
When did you begin planning and what drove the decision?
What is the strategy for getting there?
How much of a relative decline in income are you prepared to take / did you take?
What are your main concerns?
For those already in early retirement - how is it progressing? What have been the good and bad surprises (financial and otherwise)?

I will post my strategy but wanted to get some thoughts
Money won't buy you happiness....but I have never been in a situation where more money made things worse!
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  • LintonLinton Forumite
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    I would like to create a topic (don't see it at the moment - other than the NUMBER thread).

    Who is aiming for early retirement (or who has retired early already)?
    When did you begin planning and what drove the decision?
    What is the strategy for getting there?
    How much of a relative decline in income are you prepared to take / did you take?
    What are your main concerns?
    For those already in early retirement - how is it progressing? What have been the good and bad surprises (financial and otherwise)?

    I will post my strategy but wanted to get some thoughts


    To answer your questions one by one:

    1) I retired at 56, 5 years ago.

    2) Serious planning - about 6 years previously. However from about 35 I was maxing out on pension contributions and had started on serious investing from around 45.

    Driver - I realised that I would be in a position not to need to work and the increasing stress associated with a well paid job was becoming less justifiable. Anyway IMHO there are better things to do with ones life.

    3) Strategy:
    a) Decide how much income you want to retire on. To do this you need to know how much your are spending, on what, now. Just budgetting bottom up isnt a good guide.
    b) Have good money and investment management tools so you know what you've got in detail without the need to repeatedly work it all out from scratch.
    c) Put all your spare income into tax free investments - ie shares and funds. Doing this is vital. Whether those savings are ISAs or Pensions is a secondary matter.
    d) Spend hours on a detailed plan to cover you and dependents until you are 90 at least. I used MSMoney lifetime planner, but its doable with a spreadsheet. You will need to have a column (or row) per year and calculate inflation adjusted assets at start,income and expenditure, assets at close. Make reasonably pessimistic assumptions on inflation and investment reuturns - I used 3% and 4%. Also understand how much increase in inflation/drop in returns would seriously compromise the plan.
    e) Educate yourself on investing, pensions & annuities etc
    f) From the plan you know what asset base you need, so when you get there - jump, ideally at the same time as your employer is offering voluntary redundancies.

    4) I planned on a 10% increase in expenditure, rising with RPI. It's better to work from expenditure rather than income.

    5) I dont have any major concerns, though halfway through the credit crunch I was possibly getting a little worried.

    6) Despite the credit crunch progress is much better than planned. My total assets in cash terms are larger than when I retired. I am having difficulty spending as much as planned, though trying hard! It is clear to me that RPI is a very pessimistic measure.


    Retirement isnt just a financial matter - you do need to know beforehand how you want to use your time in the long term. There would be nothing worse than retiring and then spend the rest of your life watching daytime TV because you have nothing better to do.
  • Linton

    Thanks - very interesting.

    Makes me realise that really have got a lot of work to do. The main problem for me (us) is that I really have no idea what our current expenditure is. Of course I know what the big chunks are (House, Car etc) but have not been tracking how much we spend on (for example) food. I think for day to day items we are quite frugal, don't eat out a lot, don't spend a lot on lunches (I make my own) but the money goes on big things and house maintenance.

    You mention an increase in expenses of 10% (if I understood that right). Was that to cover the increasing cost of just "being"? Did you not have any savings on things like travel costs? How accurate was your 10% estimate?

    I assume you have a pension which funds your day-to-day expenses ?

    I have a million other questions but I will keep it light for now.
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • edited 5 November 2010 at 2:18PM
    hugheskevihugheskevi Forumite
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    edited 5 November 2010 at 2:18PM
    When did you begin planning and what drove the decision?
    In 2008, aged 30. I'd been planning before then, but the house price decline meant that I had to do more serious consideration, as for the first time I would be entering into illiquid investments (housing and extra pensions). Before then I'd simply not worked part of the year and gone travelling instead to avoid higher rate tax, not wanting to buy into an overvalued market.
    What is the strategy for getting there?
    Pensions, ISAs, money from property by moving out of London, possible inheritance (not building this into plans, but it is something that may well happen at some point - it would bring things forward if it does).

    The plan is for both myself and my partner to pension off all higher rate tax income and make full S+S ISA contributions each year. To achieve that, a reasonably high mortgage is maintained, which will either be paid off when I retire and go travelling, or if inheritance happens in the mean-time.

    As I get closer, I'll refine the balance between liquid assets and pensions, but for the time being there are no concerns there, and I'll maximise pension investment whilst I have annual allowance available and higher rate tax relief available.
    How much of a relative decline in income are you prepared to take / did you take?
    I've never lived to the standard I could have done if I had used all my income, so declines in income are not relevant.

    I base my plans on maintaining current expenditure levels, with a lot of caution built in such that in practice I expect to have higher expenditure available in all bar the worst case.
    What are your main concerns?
    In order:
    • Job loss
    • Government changes pension rules again, in particular access at age 55, or lowers Annual Allowance
    • A long-term decline in nominal house prices
    • A long-term stagnation of investment returns
  • bendixbendix Forumite
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    I'm 46 and will be retired by the time I am 50, possibly earlier. I could retire today but am prudently deciding to make hay while the sun shines and continue saving hard, notwithstanding the considerable personal sacrifices I'm currently making.

    I decided I wanted to do this five years ago, and have basically saved as hard as a I could in the interim, building up a solid cash pile, a paid-for property and now I'm working on the pension side of the equation. The strategy is simple - live off the income from the cash pile without eating into the capital from, say, 50-55 - and then boost my income with income drawdown on the pension fund which should be a decent size by then.

    As a previous poster has said, the 'decline' in income post-working isn't a consideration. I earn a high salary and spend a tiny fraction of it - my living costs are miniscule. I plan to retire overseas where I already have a home so, in fact, my living costs post-retirement will be even less then. If I retired today and used what assets I have, I would seriously struggle to spend the forecast income although I'm sure Mrs Bendix would find a way to blow it.

    I have no major concerns - not financial ones anyway. My assets are spread in various asset classes and in various geographies around the world so I do pay a huge amount of attention to FX markets, but at the end of the day when I crystalise those assets, that will be less of an issue.
  • My own situation has been posted several times before. A remarkable similarity to the above post of Linton:

    I retired age 56. Built a retirement model around age 50 to tell me at what stage I could retire. My criteria included: 1. Cautious assumptions, 2. Must be able to continue spending exactly as when working (with inflation provision for life, of course).

    Also, I'm now 5 years into it, and worth about 11% more than I was 5 years ago.

    You will find there's a "virtuous circle" to this. If you build an excel model that doesn't lie or exaggerate, then it informs you adequately when you can retire. Provided the 'default' answers are pretty much close to what you want to hear, then the motivating part is 'controlling' your life (financially) from then on to meet the assumptions you've already made. Or even exceeding them.

    It is my strong opinion that the vast majority of people complicate it for themselves. The evidence is clear - by finding all the posts along the theme of "How much do I need to save..." or "Should I save in Pension X and will it be enough....". My main point here is that the "Focal point" for your deliberations must be spending. This is the real subject and not 'saving'.

    Thinking this way simplifies and clarifies things no end. Because the fact of the matter is you are spending now. You will spend in the future, and you will want to spend when you retire. The shape and profile of your spending changes over time, but what you spend now and in the future is the key thing.

    It then follows, that if you are spending everything you earn, then savings doesn't enter into it. If you spend less than you earn, then by definition you are 'saving' the balance. So model what you spend and want to spend in the future. And then wrap around that what your income will be - earned and unearned (interest). The resulting calculation then tells you when you can retire.

    If this gives unsatisfactory answers? Then go back to the drawing board. The answer, invariably, is to spend less. [Yes, I know this is really the same as saving more, but I very strongly counsel you to think from the spending angle. Because that's what lifestyle really means.]

    Once you have a reasonably cogent retirement plan, then that's half the battle. NOW you can concentrate on more detailed, and sometimes challenging issues about pension choices, fund choices, savings strategies, interest rates, tax management.....
  • I should mention I was 46 last week and looking to retire before 55 (earlier if the sums add up)

    Ok, I am getting the strong message so far that focus in the first instance. I have a figure in my head which could be wildly wrong. I think the comment about not spending (and saving the balance) is very appropriate i.e. at the moment we really do not track spending very closely (as we do not have to) and therefore we simply save what is left.

    I plan to split my current spending into 4 buckets:

    1. Expenditure that I expect to fall away (school fees! Mortgage interest hopefully)
    2. Money going into saving at the moment.
    3. Day-to-day expenditure.
    4. Discretionary spend (cars, holidays, capital goods etc).

    I suspect I will be left with a gap which I think will be money that "leaks" away i.e. I can't account for it - Clearly if I start imposing some discipline I am to get much clearer on that.

    I would be interested to hear from some of the posters on category 4. I am guessing we would be able to manage with one car but that might be balanced by increased spending on holidays.

    The other big question will be where do we live. We have some equity in our home but also a big mortgage. We also own a holiday apartment. If we sold the two we might end up with around £300,000 net which would probably be enough to buy a decent property (although not as big as our current house)

    Oh.....and of course I did not forget the non-financial category - what do you do with the spare time you have available now?
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • cruxcrux Forumite
    156 posts
    Great thread.

    I'm 38 as of yesterday and have started thinking about retirement quite recently.

    It looks as though were I to work until I'm 65 and all things go to plan, then I should have a comfortable retirement.

    However I'm keen to get out of full time employment earlier than age 65 and things don't always go to plan in the long term!

    But I'm not sure I want to be fully retired as early as say 55. There is only so much golf, travelling and hobbies I can stomach! Maybe I lack imagination but I suspect would get bored.

    Also the nightmare scenario is hitting 50 being made unemployed and not being able to get a job that covers the remaining retirement plan cost, being in effect made to retire before I'm ready.

    So strategy wise I'm thinking about starting a 5-9 type business venture with potential to grow if needed.

    My thinking is that a part time business on top of my full time employment will both increase my income now (bringing early retirement closer to reality) and be a potential hedge against future unexpected unemployment, as well as keeping me busy and interested in the world outside my window when I do retire.

    Other than that I'm finally tracking all expenditure in detailed personal accounts, because I agree with LM that understanding what you spend is a big key to the whole retirement plan.
    We make our habits, then our habits make us
  • I should mention I was 46 last week and looking to retire before 55 (earlier if the sums add up)

    Ok, I am getting the strong message so far that focus in the first instance. I have a figure in my head which could be wildly wrong. I think the comment about not spending (and saving the balance) is very appropriate i.e. at the moment we really do not track spending very closely (as we do not have to) and therefore we simply save what is left.

    Yes, this is reality. That's why concentrating on spending is the key. By definition, I class Income less spending as "saved" even if it lounges in a zero interest current account. How to do better is a totally different (but valid) debate.
    I plan to split my current spending into 4 buckets:

    1. Expenditure that I expect to fall away (school fees! Mortgage interest hopefully)
    2. Money going into saving at the moment.
    3. Day-to-day expenditure.
    4. Discretionary spend (cars, holidays, capital goods etc).

    I suspect I will be left with a gap which I think will be money that "leaks" away i.e. I can't account for it - Clearly if I start imposing some discipline I am to get much clearer on that.

    It strikes me that this is your 'achilles heel'. Spending patterns change dramatically throughout life. Huge mortgage interest in early years. Child costs. Wild entertaining.... Everyone is different. Being able to account for every penny throughout your life helps very much to establish the underlying 'cost of your lifestyle'. Within there somewhere is the true 'cost' of what you will do when you retire.
    I would be interested to hear from some of the posters on category 4. I am guessing we would be able to manage with one car but that might be balanced by increased spending on holidays.?

    These items can be difficult. Regarding the car, I 'depreciate' mine. In other words, my 'spending' includes car depreciation. This is a nominal account which is negative whenever I add up my net wealth. So the minute I buy a new car, it is totally neutral to my net wealth. Within my retirement budget, I allocate a fixed amount to "one-off". This year, we blew it on refurbishing the bathroom. Last year it was the Utility room. Prior to that we had an excellent holiday in Bali. Next year, we plan another exotic holiday, on top of our normal 8 weeks.
    The other big question will be where do we live. We have some equity in our home but also a big mortgage. We also own a holiday apartment. If we sold the two we might end up with around £300,000 net which would probably be enough to buy a decent property (although not as big as our current house)

    Basically... er... your problem!
    Oh.....and of course I did not forget the non-financial category - what do you do with the spare time you have available now?

    Ha! The $64,000 question. The absense of 'work/career stress' is an amazing relief and keeps me 100% happy. Basically, you need to decide what you want to do. I have a long holiday. Subject to weather, I sit by our pool and consume a very large number of large Gin & Tonics. In the winter, I find genealogy an extremely interesting topic that could consume your time full time if you allowed it.
  • LintonLinton Forumite
    12.6K posts
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
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    Linton

    Thanks - very interesting.

    Makes me realise that really have got a lot of work to do. The main problem for me (us) is that I really have no idea what our current expenditure is. Of course I know what the big chunks are (House, Car etc) but have not been tracking how much we spend on (for example) food. I think for day to day items we are quite frugal, don't eat out a lot, don't spend a lot on lunches (I make my own) but the money goes on big things and house maintenance.

    You mention an increase in expenses of 10% (if I understood that right). Was that to cover the increasing cost of just "being"? Did you not have any savings on things like travel costs? How accurate was your 10% estimate?

    I assume you have a pension which funds your day-to-day expenses ?

    I have a million other questions but I will keep it light for now.


    The 10% increase in budget was to cover the increased time for pleasures. "Being" is a bit cheaper after retirement but then I wanted more than that for the next 30 years.

    One thing to note is that I have a relatively large budget but I regard that as a limit, never to be exceeded.

    Currently I have taken one of my pensions which covers 20% of the budget, the rest is from savings. The main pensions will come in at 65.
  • LintonLinton Forumite
    12.6K posts
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
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    .......
    I plan to split my current spending into 4 buckets:

    1. Expenditure that I expect to fall away (school fees! Mortgage interest hopefully)
    2. Money going into saving at the moment.
    3. Day-to-day expenditure.
    4. Discretionary spend (cars, holidays, capital goods etc).

    I suspect I will be left with a gap which I think will be money that "leaks" away i.e. I can't account for it - Clearly if I start imposing some discipline I am to get much clearer on that.

    I would be interested to hear from some of the posters on category 4. I am guessing we would be able to manage with one car but that might be balanced by increased spending on holidays.

    The other big question will be where do we live. We have some equity in our home but also a big mortgage. We also own a holiday apartment. If we sold the two we might end up with around £300,000 net which would probably be enough to buy a decent property (although not as big as our current house)

    Oh.....and of course I did not forget the non-financial category - what do you do with the spare time you have available now?

    I didnt worry about the details of expenditure. All I needed to know was how much I was spending a year and whether I was happy with our standard of living.

    Spare time - spend as much time as possible on the canal boat.
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